Here Is Why Henry Blodget of BI is Wrong About Innocence of Bankers in the Housing Bubble

Henry Blodget has maintained that the bankers who sold collateralized debt obligations (CDOs) throughout the world, were not guilty of breaking the law. He says that buyers were sophisticated and should have known about these products.

But last time I checked, the sophistication of investors did not determine if there was fraud involved in the packaging and reselling of the CDOs. For one thing, there are common law claims, as fraud is fraud whether it rises to the level of securities fraud or not. And as to securities fraud, representing the CDOs as being safe when they were not could violate the law.

The fact that there were disclaimers and ways for the underwriters, the big investment banks, to protect themselves may cause the claims against securities fraud to fall short. But RICO laws are in the common law and they can apply to securities violations. Investors should have been able to sue and even request criminal prosecutions for RICO laws, but the 4 year statute of limitations has passed for the housing bubble. 

That doesn't make Henry Blodget right, it just means that the prosecutors dropped the ball, probably on orders from higher up.

RICO would have required two crimes against the investors, so that could have included securities violations, mail fraud, wire fraud and a host of other fraud.

Financial services companies have been exempt from RICO charges because those are penalties that hurt, and those are penalties that reach toward the top of the companies. If the attorney general does not prosecute Henry Paulson for RICO fraud in spreading billions of dollars of fraudulent CDOs, it could be that they were attending the same cabinet meeting and were buddies, so that prosecutions were covered up.

That doesn't make Henry Blodget right. Henry knows that easy money loans were not against the law. They were immoral, and should have been against the law as they are in other countries. But they weren't against the law. Henry is right about that, but it doesn't make it right just because it isn't against the law.

Henry thinks if it isn't against the law, it must be too bad, so sad, for you folks who got a bad loan and lost your shirts. But even people who got good loans lost their shirts. What about that Henry? 

If it isn't against the law, for Henry Blodget it all must be ok, permissible. Well, Henry, they want to blow another housing bubble and it will likely be permissible. It doesn't make it right.

And there are other aspects to the housing bubble that were not strictly against the law but were a form of fraud, a legal fraud if you will. One is that so much easy money was offered that it affected the market and manipulated the price of housing. It distorted the market for the advantage of the wealthy. It isnt' right, but according to Henry Blodget it is quite alright, since there wasn't a law.

Well, Henry, you know who writes the laws don't you? You know the lobbying game don't you?

Unethical housing bubbles and toxic housing loans hurt America, Henry, whether against the law or not. There is a higher law. And that law will judge these bankers by a much different standard than you do. A Ponzi housing bubble is unethical and should be against the law. It destroys the value of a house, making it impossible to price the value of a house.

When a borrower has that happening to him, with an investment that is not liquid, he is stuck holding the bag and it shouldn't be that way Henry. I can understand and accept house price fluctation based on real economics, like a factory closing, but not because bankers are manipulating the market with toxic loans and fraudulent securities that allowed them to pawn off those toxic loans.

Henry Blodget, you don't have much of a conscience, or at least that is what I am inferring from your attitude about the housing bubble. After what you have gone through, being permanently banned from securities trading, that bothers me.

After all, Henry, you were banned, but these underwriting scumbag banks can spread crap securities the world over and no one can touch them. They got you, the little guy, but they didn't get the bankers who deserved way more than you in the form of penalties to the max!

But just know this: the courts aren't done with this matter. I hope they hit with a powerful hammer, the fraud that took place and the hurt it caused  MainStreet USA.


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